The Productivity Puzzle – John Seddon

In this thought-provoking episode, John Seddon joins James Lawther to unravel the complexities of productivity and growth within modern organisations. Seddon, an occupational psychologist, consultant and author, critiques the prevailing reliance on government regulation, economic theory, and technological quick fixes such as AI. He argues that these approaches often hinder genuine progress, advocating instead for a shift towards effectiveness at the enterprise level. 

Through engaging anecdotes and references to Deming’s influential work, Seddon highlights the importance of systems thinking, knowledge, and purpose-driven management. 

The discussion explores the pitfalls of target-setting, the unintended consequences of regulation, and the limitations of technology in addressing poor performance in service organisations. Seddon calls for politicians and regulators to step back, empowering managers to innovate and focus on delivering real value. 

This episode offers valuable insights for leaders seeking sustainable improvement, challenging conventional wisdom and encouraging a more thoughtful, evidence-based approach to improving organisational performance.

Transcript

James: 0:14

Good afternoon and welcome to another, episode of Beyond Demi. I'm joined today by, a person that many of you will know, but John seven. So before we go on, I will hand over to John and let him introduce himself.

John: 0:25

Uh, well, thank you James. Uh, I'm, John Sadden, as he said. I'm in a fortunate position in my life where I can do what I please, um, that pleases me to talk to James. Uh, pleased me to help all sorts of people. That's what I spend most of my time doing if I am working. but originally I was an occupational psychologist. I had the fortunate experience of being asked to audit a TQM program that failed in the 1980s. So I came across the work of WS Deming. It taught me a lot about what's wrong with, management. He makes the simple point that humankind embedded management, it doesn't work, and we can change it to be much more effective. And I, I set about, working on how do you do that in a service organization. And that has been my career. Um, and I published a number of books on it. we have had an extraordinary track record, and I've had loads of fun. That's all I do.

James: 1:20

so we are gonna talk today about productivity and growth. That is the doing your specialist subject for the day. So why are you interested in that? What gets your goat about that as a subject?

John: 1:32

I've been, like a lot of people, I, I read the Sunday papers and I, and I listen to Radio four and for the last god knows how many years and more strongly in the last. Year, productivity has become the big issue, a well, a big issue. And growth of course, everybody wants growth. I've always read economists throughout my life, although they're difficult to read, but I, I have. I actually wrote about this in Beyond Command and Control. You know, politicians describe. Productivity is a vexing conundrum, which is a phrase that basically means they don't know how to fix it. every time, we have a budget, they do things to improve productivity, but lo and behold, productivity doesn't improve. Uh, and the economists describe productivity as a puzzle. And nevertheless, between these two parties who by self declaring don't know much about what to do, the government gave the. economists, 32 million pounds or more, uh, to have a productivity institute to research productivity. And I thought, well, John, you can do what you like. So I think I'll have a cracker adding into this mix because the work of Deming was the work that inspired me. And he, he, he helped Japanese manufacturing transform the Japanese economy in the 1950s. I mean, the, the economy grew every year by an average of 9% in the 1950s. an extraordinary level of achievement far above what was happening in other countries around the world and indeed the uk. Uh, and I thought, well, I wonder why the economists don't think about that. And, and I'm exploring that, but I'm also, I'm digging into, well, what are they doing with their research? given that my work. Deming's principles apply them service organizations. I can talk with some authority about what productivity and growth looks like in service organizations. because, with no humidity whatsoever, I felt service organizations improve their revenue and therefore grow by 20 to 40%. I've seen'em improve their effectiveness, and therefore their efficiency grows by more. Often than 40, 40%. and I wonder why the economists, don't understand that growth really should be looked at at the enterprise level. Um, they look at it in terms of investors and markets and it's a lot of theory, so I thought I'll write about that. you can't, you can't ever be sure that it'll be finished as a book, but the, the working title is Productivity and Growth, a Systems Prescription. Because I think we can actually prescribe what it is people should do to achieve growth.

James: 4:15

And sorry, this is a rather obvious question in my mind, but do you think those two things are linked?

John: 4:21

Of course. Yes.

James: 4:23

Yeah, because,

John: 4:25

Uh, well,

James: 4:26

so I agree with

John: 4:27

yeah.

James: 4:27

agree with you. Just so you don't think I'm a complete fool, but I just, you know, spell it out a wee bit.

John: 4:32

I don't remember what Demi said. He said he, he would talk to manufacturing. He was, he'd say, why is it that productivity improves as a consequence of improving your quality? And they would say, oh, let's rework obvious. Um, and we can all, they get it. So in service organizations, they're not like that. Just go back to manufacturing for a minute. You know, just think about this. So I'm sure people would've read the machine that changed the world published in 1990, um, that talked about an astonishing fact. The number of man hours it took to build a Lexus was less than the man hours used in repairing a top of the line German luxury cart. The end of the line after they made it, that's big. And of course, TNO was running a system where he took the order, then made the car. Uh, and his strategy was to reduce the time between taking the order and making the car and made high quality cars. I mean, I, I would confess I drive a Lexus. Why it's manufactured in Japan, it's a very high quality car. That's obvious. In manufacturing, you can see rework, but of course in service you can't see rework. In fact, the service management paradigm that people work to, which is basically how much work is coming in, how many people have I got, and how onto these people take to do stuff, treats all demand as work to be done. And yet there is this straightforward phenomenon that I discovered in the late eighties, which I call failure demand. It took me about, uh, five years of work before I settled on the definition of failure demand, which is demand caused by a failure to do something or do something right for a customer. And it sits at the front of your service organization. It's robbing you of capacity. and if you are a typical telephone provider or looking after people's home meeting and that kind of thing, the levels of failure demand in your current system are eye watering, but you can't see them.

James: 6:37

productivity and efficiency are pretty much, pretty much. The same thing. It's about what you get out for what you put in. You could draw it up as an equation, but there seems to be a mindset thing about what you do if you make the system run better. And if you decide you just going to reap the savings and man Saxon people, you get one outcome. If you take that and you invest that in lower prices or whatever it may be, you get another outcome. So I do think productivity and growth are linked. Absolutely, totally agree. But it does depend a wee bit upon the manager's mindset about what he does when he's got that

John: 7:17

growth. Growth comes from more revenue, more customers, and certainly that that's the route you take in private sector organizations because that's how they generate their money, with. With public sector organizations, it's a different ball game because, if you improve your productivity, Well, you increase your capacity to do things. it is not about taking a load of people out. You could certainly stop hiring people. but it enables you to do more with the money that you got and and take, you take adult social care, for example. when we've helped people study adult social care, it's very ineffective, because of the way in which the whole, assessment and provision, is, is fragmented. it effectively wastes about half of the money that they're spending on helping people because these things that they're doing aren't helping. if you can make that more effective, you can help more people at a lower cost, That's what you can do.

James: 8:17

You say productivity is at an enterprise level rather than a um, economic level. Can you just expand on that a wee bit? Why do you say that?

John: 8:27

if you want to improve, productivity and growth in a country, you should look at the enterprise, not at markets and investors, which is what the economists tend to focus on. it is a bit, it's about like talking to an accountant or someone who speaks a language you don't understand. it, it just takes a while for my brain to absorb what on earth they're talking about out. David Sainsbury. Uh, understands this. he's a good thinker. he talks about how since the Thatcher period we've, destroyed or taken out, an awful lot of high value manufacturing firms that naturally have high value jobs, and we've replaced them with low value jobs, like call centers and so on, and that he, I think, rightly perceives as a reason for lowering, productivity. and growth,'cause there's nothing much going on there. there's not much of value going on there. We've taken out enterprises that could create a lot of value.

James: 9:30

Yeah Not that I entirely believe this myself. I'll just throw it out there, throw some pebbles in. So they know exactly what they're doing about productivity.'cause they do a huge amount about target settings. They're busy regulating things left, right, and center. And then obviously it's all about ai. What's your take on all of that?

John: 9:52

should we take the last one first? You'll have to remember the other two.'cause I won't, uh, ar

James: 9:57

It's all right. I will. Don't worry. I will. Yeah,

John: 10:00

you. Um, ai Well, it's kind of amazing, isn't it? the tech company's pitch is that everyone's doing this, uh, don't get left behind. The future is in ai. It's gonna improve your productivity. So what you need, um, is, you need, an AI robot that does all your, all your boring tasks. So we, you don't get bored anymore at work. They go off and do your boring tasks, uh, and you can have a, uh, a robot advisor. Uh, you know, like copilot is attached to you who's running around doing things and planning for you and all of that. and then you are the human being and your job is just to build good relationships with customers. Uh, and you can use the machine to do all the boring shit. just kind of go, oh, really? I mean, yeah. I mean, servicing call centers is dire. Why? Because, The managers don't understand the extent of demand and the amount of failure, demand. I mean, you put AI into a place for of failure, demand, what's it gonna do? Um, you're just, you're just polishing a turd, really. I know clients have had a, a go at using AI to, uh, understand demand. Hey, look, machine, there's two major types of demand that come into this system. There's value demand, which is what our customers want from us. They wanna pull from us, and there's failure. Demand, which represents a failure. Do. So, I do say right for the customer, and the, and the machine cannot learn. What failure demand looks like. It cannot learn because it doesn't have the ability to make judgements, you know? Now, of course, the IT people will say, oh, don't worry about that. We'll just keep feeding it more and more and more and more examples, and it will slowly get it right. Okay, well, you, you think that's important? Well, let me tell you, pal, that failure demand is not something you need to measure on a regular basis. Failure demand is a signal. Um, so I wouldn't even bother to try and codify it, measure it, put it in your. desktop data, whatever. Uh, it's kind of just going in the wrong direction. I asked my own local authority, you know, that crowed about AI in, in the local paper. Well, they're using AI to do meeting notes and to schedule next meetings and to, uh, uh, go and get documents or tell you how many documents there are. You know, things like that. And I'm thinking, well, is this actually, is this really gonna release. People'cause the only way to improve productivity in those environments, take people out. Oh yeah. Well we have a plan that we're gonna reduce our head count. So, but we're not firing anybody. We're just gonna let attrition kind of start, get up and I'm thinking, well, good luck.'cause I can't see that this is going to improve the effectiveness of the service and therefore make it better for the customers and, uh, more effective for you. I just can't, I can't see it. Uh, but you know, the whole idea that there are m tasks is a classical kind of command and control idea. you build a call center and you go, oh no, let's not have the people do simple things or whatever. What have dumb people do? Simple things and expert people do harder things. It's'cause they haven't understood demand from a customer's point of view. They think like that, but it's not like that.

James: 13:25

I think it's just beautiful. My daughter is 21 and she's just got a graduate job. to get that. Well, when I did this, you filled out a form with a Biro and you sent your form in and then someone will read the form and then they decided whether or not they would, um, interview or not. And I must have turned away. Dunno, I should think about 15 forms I filled in before I got a job. now what happens, of course, is you fill the form in online and it's screened by AI to see if it's suitable or not. So my daughter, she filled in about 40 of these things and kept getting knocked back. So then what she did was she, went into her university careers office and she found their ai, their age screening ai, and she put her thing in there to see what sort of score it got. And then she manipulated her cv, so she got a higher score and then she dropped that in and lo and behold, she got an interview. So all we've achieved is just thousands of cvs flying about. Uh, but there's no actual improvement in productivity.

John: 14:25

example of, it has no ability to make judgements. but equally, there's a kind of a broader thing going on here with the tech industry. I mean, have you noticed how technology opens the door to thieves? So, if you want a student, well, you're not a student, but you, as long as you feed the right data into a portal, it'll pay out. So you do it with benefits, you do it with student loans, you can do it. There's so many things now that if you feed the right things in, it will pay out because it's digital, isn't it? Digital by default. Really,

James: 15:00

Yes, and nothing could possibly go wrong with it.

John: 15:04

I mean, you take, you know, and I'm sounding like a grumpy old man now, but you take benefits processing. You know, when I did benefits processing in local authorities it was face to face.

James: 15:14

Yeah.

John: 15:15

and the people, who were dealing with the claimants, would get coaching every year from, retired police officers on how to spot fraudulent behavior. Good. Uh, then they moved it onto the phone by order of the audit commission. Um, and that increased. Fraud because now you've only gotta persuade someone at the other end of the phone and send documents to them that are gonna make them tick a box and then they moved it onto computers and that increased fraud and so on. It goes, you know, um, if you want good quality service and good judgment, then you need people.

James: 15:52

Well, but it's, um, it's interesting I think of the, um, Peter Druer quote, and I dunno, when Peter d Drer made said this, but it must be 50 odd years ago, there is nothing quite as useless as doing something efficiently that should not be done at all or worse to that effect. And that is essentially what this stuff is doing. So AI, then not the solution, but what about all the government regulation and target setting? Why won't that work for them, don't you think?

John: 16:18

Well, I don't know whether you know, but last year I published a manifesto on rethinking regulation, and the basic argument of that manifesto is that regulation makes performance worse. It's an impediment to productivity. But essentially the problem is that ministers and regulators impose their theories of management on people, and the job of the people is to comply. and if their theory of management as Tony Blairs was, is that you must have a call center, you will comply. and then it was, you must have a back office in benefits process in courtesy of Peter Gersh and Co and you will comply. and then it was the audit commission saying, oh, look, you've got a backlog in your back office as everybody did, because it doesn't work. You, you, you got to outsource that to the private sector to bust the backlog. and everybody complied. and basically, the regulators impose their theories of management, and that's a mistake. There's a systemic relationship in all organizations between purpose measures and method and regulation is strayed into imposing meth method of measures, and they, we should limit regulators. I say to purpose, and we should allow the people who run the businesses wherever they are to make their own choices of method, of measures, and that would increase transparently, enormously. We put us in a place where we're all learning, gives people the freedom to do what they choose. Uh, and, all you can get from that is an innovation. Also, the baddies will be exposed because there are plenty of people out there at the moment who just do what they have to do to satisfy the regulator and run shit. Public services. I can promise you of that. I, I, I've been in there, I know where they are. these people will be exposed. Because they won't have good evidence of achievement, of purpose. Um, so that's regulation. it's been the bane of my life.

James: 18:13

Uh, on a positive note, John, you've built a fairly successful business off the back of it.

John: 18:17

Oh, well, no, I've got a reputation off the back of it, so, you know, I, I created a lot of enemies

James: 18:24

But the pennies dropped with me there. because actually regulation is no different from target setting, you can say, you must use a call center, or you can say, you must clear 20 of these an hour. It doesn't really matter. People will do the absolute bare minimum it's effectively the same thing. So go on this. So those things don't work. Where should the government be looking instead?

John: 18:47

To improve productivity or get out, get off regulation, a adopt my revised method of regulation. Uh, that's a simple thing. Get out of management. 25 years ago when I've. I used to bang out a newsletter all the time. And the number of times I use this phrase is just incredible. And the phrase is, ministers should get outta management. First thing they should get out of management. The, you know, isn't it crazy, we elect these people to lead us politically as a country, but they find themselves top. Managerial positions dictating how things are gonna be done, So we have Chris Grayling, uh, imposing his idea about perfect on, on the, criminal justice system. a major fuck up. You know, a major fuck up. we have, we're treating, doing his thing in health, you know, more, fuck up. The, uh, it's crazy. these people have no idea about organizations and management and it, and it's not enough. You know, like the Reform party. People say, oh, you know, we're, we're ex-business people, therefore we're gonna be better. Look, what we've gotta do is let the people who run things run things. And actually subject them to better scrutiny than we have at the moment. we don't have scrutiny at the moment. We have conformance you, you tick the boxes, you are safe. politicians have gotta get out of this mode of thinking. They should impose their ideas about management. most of them are just plausible ideas sold to them by the big consultancies, which is why you see on the the productivity forums around around the country, they're populated by people from the big consultancies, obviously fishing out there for work. and influencing people to do bullshit like ai, I, I, I do recognize that AI will be good in, and I use it myself. You know, it's asking Chatbot is smarter than searching on Google. You get there quickly. Um, but sticking it in to run services, never.

James: 20:57

Yeah. It depends what you're asking it to do, doesn't it? I suppose. Um, so having said all of that, then what should they be doing instead? John, do you believe?

John: 21:06

The regulators, the, uh,

James: 21:09

Well, the politicians, the regulators, the whole nine yards of'em, quite frankly.

John: 21:13

Well, we talked about the politicians. They should get outta management. This doesn't make any sense for politicians to be involved in management, but regulators need to as well. they spend more than half their time actually writing specifications. and indeed they are, uh, closely involved in how an or how many organizations are gonna run. they've gotta stop doing this. Um, the, in fact, there's, there's no requirement for them to write anything because, uh, the only thing that people are gonna be told who are gonna be regulated is the purpose of this enterprise, uh, from a citizen's point of view. Um, that can, that is properly determined by politicians. politicians are supposed to represent us. They know what the issues are for the people. Uh, they can therefore tell these enterprises what matters from a citizen's point of view about this service. And then you've gotta leave. The the people who run these services to get on with it. So the regulator's job, God, we're gonna free up a lot of their time. We probably don't need as many regulators and we would need better quality people in regulation.'cause their job is to turn up and say, well, for this particular service, this is the purpose. As defined by politicians in law, your job is to, to show me what choices you've made about methods and measures, and then we'll go together and have a look. You can show me how, how you are using those methods and measures and what you're learning as a result. Now everyone's engaged in producing knowledge.

James: 22:42

but that implies, John, let me just get my thoughts straight on that then.

John: 22:46

Yeah.

James: 22:47

That if I'm working in a commercial sector where I'm not subject to quite so much regulation. Then therefore you would expect the commercial businesses to be better run. But is that really the case?

John: 23:01

I don't think there's any less regulation in the private sector. Uh, I mean, you, you, you look at the Grand four tower disaster. Okay. You know, that was all about cladding. government people were actively involved in the specifications and knew, that a lot of the materials being fitted were not fit for purpose. but because they're involved and because they lived in a regime where Eric Pickles at the time was saying, oh, we, we want less regulation. We don't want more regulation. We want, one in, one out. All that kind of talk was going on. they did nothing about it, so, you know, now the people who've fitted this stuff are saying, well, it met your spec, so we're not to blame. it seems to me it's quite straight straightforward. The purpose of purpose of a contractor in building a block of flats is to build something that's safe, as you would expect. And if, if it isn't, they carry the liability

James: 23:57

yeah. Okay. So by giving them that particular targets or regulation to hits. You know, just gave'em carte blanche. Whereas if they stood back and you'd said, well, your purpose is to build safe buildings, then demonstrably, they had not done that and wouldn't have got into that position in the first

John: 24:12

right. And they should have the liability for that. it's the same with driverless cars. I heard on the radio recently an American who's already got driverless cars working in American cities said it's coming to London. And, and the government had issued, uh, an edict that says, well, they've got to be as safe as, as consumer driven cars. And so the guy says, well, we're waiting for the government to further define that. Does. I don't think it needs any further definition be, I mean, basically if these things go wrong, they must carry the liability. If you try and add to a list of, add a list of specifications, they'll just make sure they work to the specifications and if there's something goes wrong outside of them, they'll say, not me gov, Um, it focuses people in entirely the wrong way. I mean, the, I I was excited by the Financial Conduct Authority when they said a few years ago, we're gonna stop telling everyone what to do. they've got to make their own minds up. But then what happened is because they've got an army of people to write specifications, they didn't write, well, you must do this. They wrote, well, you could do this, and you could do that. People treat KDS as shoulds. So now you walk into financial services firms and you find these armies of people turning the kds into shoulds and doing things because all they worry about is satisfying the regulator.

James: 25:32

so coming back to where we started off from though, John, the whole debate about productivity and growth. if I understand your argument correctly, what you're saying is remove the regulation and get people focused on purpose. And if they are focused on purpose, then they will do a better job.

John: 25:50

Yeah, I would, I would put it slightly differently. I say change the method of regulation, so, so what we're doing when we're regulating is we're able to inspect for the evidence of knowledge.

James: 26:03

Yeah. Okay. But then therefore, the key point there is people need to have knowledge. So how do managers, how do you get managers to have or gain knowledge?

John: 26:13

Well, to tell'em their purpose is to make choices about how to achieve the purpose in terms of their methods and measures. And then you see how they're doing. Uh, if it doesn't look very good there a lot of knowledge going on, and if it looks like they're understanding and improving something, then you can tick the box on. Knowledge happens here. it'd be really interesting because, uh, we, you know, with that freedom comes the opportunity to innovate.

James: 26:39

So if you were to go give advice to the Prime Minister about generating productivity and growth, what would you suggest to him?

John: 26:49

Well, I think if I was asked. If I was asked to have a conversation with the Prime Minister, I think the first thing I want to impress upon him or her is that, you've gotta remember that economists, um. What they call the, the, you know, the dismal science. They're people who want to be scientific, have lots of theories, but can prove nothing. I mean, even when the queen asked, why, why did the crash happen? They said, we are not sure when the rest, rest of us were bloody clear about why it happened. Because these greedy bastards were selling shit products and it all, all, you know, it came home to roost. But for some reason economists can't think like that. Economists don't work at the level of enterprise, and I would want the Prime Minister to understand we must work at the level of enterprise if we want to have growth, and therefore ignore the economists because they've really got nothing to say about that. The person who did have a lot to say about that was W was Deming. He transformed the Japanese economy by help helping people understand that humankind inventive management, and we can change it. The job of management is to understand our organizations as systems. Uh, we need to change the regulatory framework so we stop imposing bad management theories on organizations, give people the freedom to do what's right, that'll open the door to all those people that now understand that running your organization's system is a far superior way, uh, to achieve economic growth and performance. And I mean, everything is good about it. Uh, and there'll be the freedom to carry on with that or do whatever they like. But the point is that if the regulators stopped imposing things and instead came and visited people to find out, you know, how they've interpreted the, interpreted the purpose as, as defined by government, uh, uh, into methods and measures and how well they're doing. Everybody's involved in knowledge. And that can only be a good thing in a society that we put knowledge first and in service organizations. I'd rather like this idea for an American who, who wrote to me, if he's following my work, he says that value and knowledge are two sides of the same coin. And that for me is the essence of effective service organizations knowledge and value.

James: 29:12

Super. That's a lovely place to stop it. Thank you very much for your

John: 29:16

That's all right.